Business, international

Sustainable growth or boom and bust?

Article Abstract:

The rapid growth of the U.S. economy during 1994 has been the focus of international attention. However, some fear that the economic upturn may lead to inflation problems, consequently monetary policy remains tight. The focus on the U.S. has partially obscured events in the rest of the world, where growth has been mostly mediocre, especially in Europe and Japan. This suggests that the world economic upturn is in its early stages, with inflation lower than expected. There is a real expectation that the boom and bust cycles of recent years can be avoided as national monetary authorities seek to ensure price stability and check future inflationary pressures.

Key issues

Article Abstract:

Many forecasters have revised their predictions for global growth in 1996 downwards and are even concerned about recession, but several trends give some cause for optimism. Forecasters are particularly concerned about the significant slowdown in growth in North America and Western Europe's core ERM-member nations, which together account for nearly 50% of global output. Governments have no scope to raise spending or reduce taxes in order to stimulate demand. On a more positive note, Asia continues to enjoy high growth, while interest rates have been falling in Europe and the US.

Key issues: Europe's policy dilemma

Article Abstract:

European economies suffered a setback in 1995 and unemployment is high. Fiscal policy is being tightened in order to achieve Economic and Monetary Union (EMU), which financial markets see as likely to be achieved by some European Union (EU) countries as scheduled for 1999 or soon afterwards. Tight fiscal policy depresses economic growth which in turn increases borrowing requirements. Interest rates can be reduced but such reductions take time to have an impact.